Value added SHRM to Drive profits

Most people will acknowledge that the HR profession encompasses a body of knowledge, expertise and skill that add value to organizations. But intuition doesnt cut in todays business world. Executives want proof that HR is a profit maker and not just a cost center.

Fortunately more and more studies are coming out that demonstrate a remarkable correlation between specific HR practices and shareholder return. Furthermore an increasing number of individual companies are able to provide solid anecdotal evidence that HR is, if not a profit center, then at least an important contributor to their profitability goals. Executives are beginning to understand that the human resource is the most valuable resource they have and there is also proof available now to show that investment in human resource pays off. SHRM professional must and can do more to actively manage perceptions and promote the good work they do. Besides ensuring all personnel related activities operate at a steady hum, HR must design initiatives in line with business objective to add value to bottom line. While HR doesnt directly produce revenue, it doesnt go out and find new business or open new markets HR certainly improves the effectiveness of the organization, which allows the company to find new business or open new markets. Various studies have shown that the 15 to 30 percent of the total value of a company can be correlated to specific human capital practices. The point is that the HR professionals have a choice in terms of how they spend their money and invest in the human capital of the firm. HR has two ways of looking at building profit: 1) Cutting costs and 2)

Helping to generate revenue by implementing right HR initiatives. 1) Cost cutting is a quick and relatively easy way to boost profits. It is typically HRs first tactic. One of the most common way of cutting cost is utilizing technology to provide employee self service. Self service technology enables employees and their managers to do such things as pursue e-learning, change benefit options, get answer to compensation questions, and manage performance without the help of HR professionals. When done well, measures that utilize technology to bring efficiency to administrative processes have the potential to reduce costs substantially. 2) Value added SHRM is the ability of HR to select and retain the right employees and help them to do their best work. This is where the real profit gains are to be found. Line and HR managers need to embrace the idea that investment in human capital can be a significant source of value creation for shareholders. When we look at companies that continue to be profitable despite todays brutal economic conditions we find that there are many similarities in how the HR efforts at these companies help to strengthen the bottom line. However it is important to remember that none of these efforts can build profit in isolation. HR activities must work together to create an overall culture that is conducive to profit-making. a> Communicate extensively: The vision, values and goals of the company are regularly communicated to employees. Not only that but bad news is routinely shared, and successes are celebrated. Companys encourage free flow of communication and maintain open door policy. Knowledge based companies dont believe in hiding any knowledge and information from their team members. b> Employees are involved in setting goals: Instead of executives sitting down and devise a list of objectives for each employee to follow, employees are encouraged to identify the business drivers, set accountability measures and roll out the plan. Involving employees in goal setting has an impact not only on

profits but also on morale. This substantially improves employee satisfaction and morale, belief in companys vision and employee understands how their jobs contribute to the companys business objectives. c> Employees understand how their jobs affect the bottom line and how the bottom line affects their paychecks: When employees understand the impact of their work, amazing things can happen. But research proves that in addition to devising a clear line of sight between an employees job and companys success, its vital for a company to share its success with employees. When employees understand the vision and how they contribute to it and benefit from it, they are much more inclined to help achieve it. d> HR is not solely responsible for HR activities: HR acts like a facilitator of change and encourages others to do the actual culture change work. Experts say Companies fail if they believe any one department should handle cultural responsibilities. e> Cost savings are important, but not the focus of HR: Saving money is an ongoing concern of HR bust cost saving should not be the primary focus of HR professionals who want to generate value for their companies. HRs focus on maintaining a culture that can ensure growth of business and that employee are creative and innovative enough to get the job done. f> Employees are given what they need to be productive: It may go without saying that it pays to provide employees the tools they need to get the job done. But those tools are not always obvious and may include everything from training and work/ family initiatives to competitive compensations and corporate ethics programs. HR adds value to the bottom line by creating attractive workplace that helps employees stay and want to be productive. If your company is a good place to work, with good policies and procedures and a good environment, productivity- and profit - increases.

Depending on the size of the organization, the HR manager has responsibility for all of the functions that deal with the needs and activities of the organization's people including these areas of responsibility.
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Recruiting Hiring Training Organization Development Communication Performance Management Coaching Policy Recommendation Salary and Benefits Team Building Employee Relations Leadership With all of this in mind, in Human Resource Champions, Dave Ulrich, one of the best thinkers and writers in the HR field today, and a professor at the University of Michigan, recommends three additional roles for the HR manager. HR Role: Business and Strategic Partner In todays organizations, to guarantee their viability and ability to contribute, HR managers need to think of themselves as strategic partners. In this role, the HR person contributes to the development of and the accomplishment of the organization-wide business plan and objectives. The HR business objectives are established to support the attainment of the overall strategic business plan and objectives. The tactical HR representative is deeply knowledgeable about the design of work systems in which people succeed and contribute. This strategic partnership impacts HR services such as the design of work positions; hiring; reward, recognition and strategic pay; performance development and appraisal systems; career and succession planning; and employee development. To be successful business partners, the HR staff members have to think like business people, know finance and accounting, and be accountable and responsible for cost reductions and the measurement of all HR programs and processes. It's not enough to ask for a seat at the executive table; HR people will have to prove they have the business savvy necessary to sit there. HR Role: Employee Advocate As an employee sponsor or advocate, the HR manager plays an integral role in organizational success via his knowledge about and advocacy of people. This advocacy includes expertise in how to create a work environment in which people will choose to be motivated, contributing, and happy.

Fostering effective methods of goal setting, communication and empowerment through responsibility, builds employee ownership of the organization. The HR professional helps establish the organizational culture and climate in which people have the competency, concern and commitment to serve customers well. In this role, the HR manager provides employee development opportunities, employee assistance programs, gain sharing and profit-sharing strategies, organization development interventions, due process approaches to problem solving and regularly scheduled communication opportunities. HR Role: Change Champion The constant evaluation of the effectiveness of the organization results in the need for the HR professional to frequently champion change. Both knowledge about and the ability to execute successful change strategies make the HR professional exceptionally valued. Knowing how to link change to the strategic needs of the organization will minimize employee dissatisfaction and resistance to change. The HR professional contributes to the organization by constantly assessing the effectiveness of the HR function. He also sponsors change in other departments and in work practices. To promote the overall success of his organization, he champions the identification of the organizational mission, vision, values, goals and action plans. Finally, he helps determine the measures that will tell his organization how well it is succeeding in all of this.

Evaluation of the Strategic Role of HR

The integration of HR and strategic management should begin at the strategic analysis stage. In this stage business goals, external opportunities and competitive advantages are identified. HR must perform environmental scanning to identify the people-related business issues. HR then must play a role in the strategy formulation by clarifying performance expectations and future management methods. At this stage a business mission is determined and action plans and resource allocations are set. HR strategies, objectives and action plans must be set to coincide with and ensure the business strategy is carried out. Finally, HR plays a role in strategy implementation by developing

processes for organizational change, strategic staffing, learning and development and employee relations. As organizations plan for the future, Human Resources (HR) professionals must take on the strategic role of anticipating where the company is going to be down the road and understanding the changing demographics and expectation of the workforce. Essentially, HR is the guardian of information as to who the best people in the organization are and what their talents are. HR must track the skills of the workforce and match them up with the organizations needs. In addition to being knowledgeable about the organizations workforce, the strategic role of HR involves being knowledgeable about the labor force outside the organization. In order to effectively be a part of the strategic planning process, HR must perform environmental scanning. Environmental scanning is the

monitoring of the major external forces influencing the organization. (Bohlander1998) Some environmental factors may include: economic factors, competitive trends, technological changes, political issues, socia! l issues, and demographic trends. A vital element of HRs strategic role is determining if people are available, internally or externally, to carry out the organizations goals. Ultimately, successful HR planning helps to increase the organizations ability to act and change and gain competitive advantage. There must, however, be a reciprocal and interdependent relationship between top management and HR. This is best achieved when a HR manager is part

of the organizations management steering committee or strategic-

planning team. HRs role is to essentially conduct a skills analysis which involves the evaluation of employees and applicants knowledge, skills and abilities in relation to the future needs of the organization. First, HR must have a clear picture of what the organization will be doing by the end of the planning period and then predict the needs and create a list of job modifications, descriptions and specifications that can meet those needs. HR must then evaluate knowledge, skills and abilities of employees. Based on this analysis, training and development programs may need to be developed within the organization to ready staff for future business plans. In addition, outside recruitment may be needed to fill the upcoming staffing needs. Outside recruitment is part of the strategic planning process that requires HR to be aware of external factors influencing the labor force. Evaluating and planning for demographic changes are one of the greatest challenges HR managers face. Changes in age, gender, ethnicity, and education are expected to have a significant impact on the labor force in the next 10 years, creating a more diverse and aging workforce. HR managers must consider the shrinking pool of workers and the individual differences of a diverse workforce in order to strategically plan and align the HR goals with the future objectives of the organization. According to the Bureau of Labor Statistics 1996 2006 employment projections, the Asian-and-other and Hispanic labor force is projected to increase by 41 percent and 365 percent, respectively. The black work force is expected to grow by 14 percent. Due to the aging of the baby boomer, the labor force age 45-64 will be the largest. These demographic trends indicate a need for HR to be particularly sensitive to the needs of a diverse workforce. The age

distribution may indicate a lack of workers in occupations that may require a younger demographic, such as a physically demanding job. These trends are indicative of workforce issues that may arise in the future. As the labor force ages, the country will undoubtedly experience a labor shortage when baby boomers retire. HR planners need to be aware of this potential problem and strategize to address it. Effectively

managing cultural diversity is of even greater significance, as companies become more global. Todays economy is global and HR must be willing to take on the roles and challenges that a global marketplace brings. In addition to evaluating external forces effecting the organization, HR is key in examining the attitudes and activities of the organizations workforce. HR can play a strategic role in enhancing managements effectiveness. For example, by monitoring the organizations culture, HR can advise managers on what leadership style works best and how to motivate and reward employees. In working with line managers, HR plays a key role in helping managers measure employee performance and providing learning and development where necessary. By working together, HR specialists and line managers can develop and utilize the talents of employees to their greatest potential benefit to the organization. HR is also instrumental in communicating and implementing cultural change efforts throughout the organization. In order to effectively do this, HR must be aware of the current culture and be involved in the strategic planning of the change efforts. The strategic role of HR managers requires them to work with line managers and executives to create a vision for the organizations futures,

establish a strategy that enables the strategic plan to be executed, and communicate with employees about the change process in order to achieve the organizations goals. In order to compete through people organizations have to integrate HR into the strategic planning process in order to mange human capital effectively and develop strategies for identifying, recruiting, and hiring the best talent available.

http://humanresources.about.com/od/humanresourcesstrategic/Strategic_Human_Resource_Manage ment.htm

Updated May 1 2008 - Recently, Maxxim Consulting interviewed 20 CEOs of FTSE350 companies in the UK and found that only four knew exactly how many people worked in their respective head offices. Also, just four CEOs knew how much their head offices cost to run each year. According to Claire Arnold, a Partner at Maxxim Consulting: "Our study shows that at most UK corporate headquarters, unnecessary layers of complexity and bureaucracy often accumulate over time. This is an area that many of the FTSE350 are set to review in 2008 with a view to finding cost-savings. The fact that so few of the Chief Execs we interviewed for our study were sure exactly how many people worked at head office is a clear indication that there's some serious housekeeping to be done." Granted this was an extremely small study and must be regarded as illustrative rather than definitive. But, nevertheless, what part should HR managers play in such 'housekeeping' exercises? It seems that finally senior managers - some of them, at least - are willing to give HR managers a significant role in strategic decisions. But how many human resource managers know how to fulfill that role? Paul Kearns (2003: 4) tells the tale of a workshop exercise for senior human resource managers when participants were given a military scenario. Briefly, they were asked to envisage that they, and a thousand soldiers under their command, had been dropped behind enemy lines - with no information about their opposition. What would they do? The first response he received was 'I'd retreat'. Kearns comments: 'Why does this response from an HR person not surprise me?' It doesn't surprise me either because so many HR managers are used to operating someone else's strategy, rather than participating vigorously in their organizations' strategic decisions.

Noting that 'business partner' and 'strategic thinker' have featured as the most important roles in some recent surveys of human resource management, Jamroq and Overhot (2004) observe that 'there's something elusive and ambiguous about this widely touted goal of becoming a strategic business partner'. They cite a recent conference on the future of HR where a panel of human resource experts came out with the statement that 'I can't define it, but I know it when I see it' when asked to define the term 'strategic business partner.' Measuring the effectiveness of HRM Is measurement at the root of the problem? Are HR managers measuring the wrong things? One common approach is to use a 'Balanced Scorecard' which includes a range of HR measures as well as the more traditional financial and other metrics. Gubman (2004) feels that 'Too many HR scorecards focused on operational metrics: Time to hire, cost per hire, percentage of appraisals completed, etc. While important to track, these kinds of measures will not get HR to the strategic partner role. They only reinforce the view of HR as an administrative function. Key HR measures needed to be central to business success.' More beneficially, according to Gubman, HR managers should focus instead on the same two major issues as their financial colleagues: return and growth. 'HR-things' can only create economic value from three sources:
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Employee turnover and retention Productivity - revenue against employee costs Expenditure on the HR function and related activities

Providing measures for these three elements does not require any 'rocket science' because they relate to three familiar HR goals: 1. Attracting, developing and retaining staff 2. Aligning, engaging, measuring and rewarding performance 3. Controlling or reducing HR costs HR-relevant measures for growth are trickier and need to be tailored to the organizations' individual situation. Grubman believes that HR measures can be devised that, like market share, can indicate trends and forecasts for improved revenue in the future. He argues that the following are the most significant growth-related human resource measures at present:
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Leadership development, to be measured in terms of unique candidates ready to assume executive and other major roles. Engagement - levels of employees' intellectual and emotional commitment to their work. Diversity, particularly the number of women and ethnic minority employees coming through the system or 'talent pipeline'.

Tamkin et al (2008) used a set of criteria described as the '4A model' (Access, Ability, Attitudes, Application) in their study of almost 3000 British organizations and found that the use of 'bundles' of HR practices produced improved performance and profitability. They suggest a number of issues that HR managers should focus on:

Access The quality of the recruitment process: putting serious effort into attracting high quality applicants; using policies and practices that 'ensure the ongoing movement of the best people through the organization'. Ability Effective, long-term development plans focused on the needs of employees and the business. These plans should be constantly monitored to ensure their effectiveness. The researchers also highlight the need for a high workforce quality, e.g. possession of degrees. Attitudes Aligning employees to the objectives of the organization - 'vital in terms of capturing discretionary effort'. They emphasize one-to-ones, appraisals and reward strategies related to organizational performance. Application Encouraging autonomy, empowerment and generation of ideas.

Behaving proactively Weiss (2000) argues that HR managers must demonstrate the ability to provide stimulating ideas and challenge decisions that do not have business value. To do this, they need to perform at the same intellectual level as their colleagues in an executive meeting. Most importantly, they need to wear a 'business hat' rather than a 'HR hat' otherwise they will be relegated to the traditional administrative or tactical (second-level) role that has bedevilled the human resource function for decades. Weiss considers that HR managers need to demonstrate the following to show their ability to add value:
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Broad understanding of the business, thus helping the human resource function to contribute to the overall direction of the company. Knowledge of how all activities need to align, enabling the company to maximize the success of its strategic initiatives. Professionalism in investing in human capital and HR processes, allowing HR to help guide employees and the organization's decision making. A unique perspective, allowing the HR function to become an 'ideas merchant' so that people and the outcomes of organizational processes can be made into strategic advantages.

Finally, we can consider Gubman's belief that: "HR needs to keep moving itself forward, toward the strategic partner role, by becoming better profit-and-loss business leaders. Be the ones to lead companies back into thinking externally, about customers and markets, and how to create unique value for them. What a surprising and powerful role that would be for HR leaders! Start measuring HR impacts on real business results, not HR activities. Instead of measuring time to hire, measure the people aspects of opening up a new market and the returns they generate."

Wiki (HRM)

Synonyms such as personnel management are often used in a more restricted sense to describe activities that are necessary in the recruiting of a workforce, providing its members with payroll and benefits, and administrating their work-life needs. So if we move to actual definitions, Torrington and Hall (1987) define personnel management as being: a series of activities which: first enable working people and their employing organisations to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled" (p. 49). While Miller (1987) suggests that HRM relates to: ".......those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage

Research in the area of HRM has much to contribute to the organisational practice of HRM. For the last 20 years, empirical work has paid particular attention to the link between the practice of HRM and organisational performance, evident in improved employee commitment, lower levels of absenteeism and turnover, higher levels of skills and therefore higher productivity, enhanced quality and efficiency [6]. This area of work is sometimes referred to as 'Strategic HRM' or SHRM ([7]. Within SHRM three strands of work can be observed[8]: Best practice, Best Fit and the Resource Based View (RBV). The notion of best practice - sometimes called 'high commitment' HRM - proposes that the adoption of certain best practices in HRM will result in better organisational performance. Perhaps the most popular work in this area is that of Pfeffer [9] who argued that there were seven best practices for achieving competitive advantage through people and 'building profits by putting people first'. These practices included: providing employment security, selective hiring, extensive training, sharing information, self-managed teams, high pay based on company performance and the reduction of status differentials. However, there is a huge number of studies which provide evidence of best practices, usually implemented in coherent bundles, and therefore it is difficult to draw generalised conclusions about which is the 'best' way (For a comparison of different sets of best practices see Becker and Gerhart, 1996 [10]

Best fit, or the contingency approach to HRM, argues that HRM improves performance where there is a close vertical fit between the HRM practices and the company's strategy. This link ensures close coherence between the HR people processes and policies and the external market or business strategy. There are a range of theories about the nature of this vertical integration. For example, a set of 'lifecycle' models argue that HR policies and practices can be mapped onto the stage of an organisation's development or lifecycle[11]. Competitive advantage models take Porter's (1985) ideas about strategic choice and map a range of HR practices onto the organisation's choice of competitive strategy. Finally 'configurational models' [12] provide a more sophisticated approach which advocates a close examination of the organisation's strategy in order to determine the appropriate HR policies and practices. However, this approach assumes that the strategy of the organisation can be identified - many organisations exist in a state of flux and development. The Resource Based View (RBV), argued by some to be at the foundation of modern HRM [13], focusses on the internal resources of the organisation and how they contribute to competitive advantage. The uniqueness of these resources is preferred to homogeneity and HRM has a central role in developing human resources that are valuable, rare, difficult to copy or substitute and that are effectively organised. Overall, the theory of HRM argues that the goal of human resource management is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The key word here perhaps is "fit", i.e. a HRM approach seeks to ensure a fit between the management of an organisation's employees, and the overall strategic direction of the company (Miller, 1989). The basic premise of the academic theory of HRM is that humans are not machines, therefore we need to have an interdisciplinary examination of people in the workplace. Fields such as psychology, industrial relations, industrial engineering, sociology,economics, and critical theories: postmodernism, poststructuralism play a major role. Many colleges and universities offer bachelor and master degrees in Human Resources Management or in Human Resources and Industrial Relations.

One widely used scheme to describe the role of HRM, developed by Dave Ulrich, defines 4 fields for the HRM function:[14]
   

Strategic business partner Change Agent Employee champion Administration Expert